Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
Exporters flagged as next lever for stabilizing won amid dollar outflow
Containers are stacked at Pyeongtaek Port in Gyeonggi Province, Nov. 14. Yonhap
By Yi Whan-woo
Incentives crucial to urge companies to convert dollars into won
Export-oriented corporations are being flagged as the next focus of government efforts to slow the Korean won’s sharp decline against the U.S. dollar, after first targeting the National Pension Service (NPS), economists and analysts said Tuesday.
The companies posted an all-time-high average monthly balance of $91.88 billion in foreign currency deposits for the third quarter of this year, driven by businesses receiving export earnings in dollars and keeping them, instead of converting them into won, according to the Bank of Korea (BOK).
These exporters’ practice of retaining overseas currencies is seen as contributing to the won's continued depreciation, alongside the NPS’ overseas investments of over 580 trillion won ($393.27 billion) and a more than eight-fold increase in U.S. stock purchases by retail investors over the past four years, now totaling $29.2 billion.
The won has persistently remained in the worrisome threshold of 1,400 won per dollar, hitting a seven-month low of 1,477.1 won at the close of Monday’s daytime trading session.
It bounced back slightly on Tuesday, gaining 4.7 won to close at 1,472.4 won.
Under the circumstances, experts said cooperation from the private sector is essential to mitigate the won’s volatility, in addition to the cooperative measures discussed with the NPS, the state-run pension fund.
“A coordinated effort from both the private and public sectors is essential, especially considering exporters’ role in Korea's trade-reliant economy,” said Shin Se-don, professor emeritus of economics at Sookmyung Women’s University.
He noted that the NPS cannot address the won’s depreciation alone, referring to a closed-door meeting Monday among four parties — the Ministry of Economy and Finance, the central bank, the NPS and the Ministry of Health and Welfare, which oversees the NPS.
While details were not disclosed, sources familiar with the matter said active currency hedging was one of the options being considered for the NPS’ overseas investments.
Such hedging would involve selling portions of the NPS’ dollar-denominated assets, such as stocks and bonds, if the local currency weakens beyond the fiscal and monetary authorities’ tolerance level of 1,480 won per dollar.
If implemented, the strategy is expected to secure 29.5 trillion won in dollars.
“Nevertheless, dollar outflows would persist as exporters, in addition to overseas sales, are also tasked with overseas direct investment,” said Kim Dae-jong, a business professor at Sejong University.
He pointed to Samsung Electronics, SK hynix, Hyundai Motor, Hanwha Ocean and other key export companies considering U.S. investments under a $350 billion package between Seoul and Washington, with $200 billion set aside for unspecified strategic industries and $150 billion earmarked for shipbuilding.
“It would be cumbersome for them to convert dollars into won, as the U.S. investment is a long-term project,” Kim said.
Experts said incentives would be crucial to encourage exporters to repatriate dollars.
“The repatriation of retained earnings from overseas subsidiaries is a key factor in the won's appreciation,” said Kwon Ah-min, a researcher at NH Investment & Securities.
The Sejong University professor highlighted a 2023 amendment to the corporate tax law, which granted tax exemptions on dividends from overseas subsidiaries.
“At that time, major companies such as Samsung Electronics brought substantial overseas reserves back to the country, contributing to exchange rate stability,” Kim said.
When asked whether such a repatriation measure would be appealing, an official at a company with exports accounting for more than half of its business said, “We can’t afford to convert dollars into won just to take advantage of policy benefits. We’ll do only what is necessary while keeping an eye on the situation."